Today, we are bringing you an overview of how the Croatian tourism industry is doing, what are the current trends on the European level but also in Croatia, how it compares to 2019, and finally, our estimates for the summer season.
With 2022 being the first year since 2019 that Croatian tourism could operate at a largely full capacity, without any travel or COVID-19-related restrictions, we decided to look at how well it played out in the last couple of months, with July and August, the 2 out of 3 of the most important months for the industry already over.
First of all, we should start with the big picture, i.e. looking at the tourism industry in Europe as a whole, since Europe constitutes the vast majority of tourist arrivals and overnight stays in Croatia. Fortunately, the European Travel Commission (ETC) does regular surveys and research on many aspects of European travel. The latest research was published in June 2022, and even though it does not account for July and August data, it can give us a certain sense of the most important trends and factors in the tourism industry.
Out of the myriad of data, the categories that we looked at are the following: the preferred country of travel, the intention to travel, the preferred mode of transport, the intended budget for the trip, as well as the main concerns regarding the current macroeconomic situation. The reason why these data points are important is because they can indirectly point to the trends in the industry. The intention to travel for the overall sentiment towards travel, the mode of transport because transportation by car dominates Croatian tourist arrivals, and the intended budget because we can see how inflation is influencing the tourists’ budgetary choices when it comes to travel.
Starting off with the top 5 preferred countries for Europeans to travel to, we have the following: Spain at 10.2%, France at 10.1%, Italy at 9.6%, Greece at 6.6%, and Croatia, at 5.6%. Considering the size of the first 3 countries and their world renown, Croatia ranking 5th on the list is a huge achievement. In fact, it surpassed other Mediterranean destinations like Portugal (4.9%), and Turkey (4%). Next up, we looked at the Europeans’ intention to travel in the next 6 months.
ETC survey: European intention to travel in the next 6 months (September 2021 – May 2022, %)
As can be seen from the data above, most respondents were willing to travel in the next 6 months, although at a somewhat lower rate than in the March 2022 survey (-3.7 p.p.). At the same time, the percentage of people that were neutral or unlikely to travel only increased slightly. Next up, we have the intended mode of transport.
ETC survey: European preferred modes of transport in the next 6 months* (September 2021 – May 2022, %)
*Numbers won’t add up to 100%, as other modes of travel are not included
From this data, we can see that the travel by air reduced somewhat, while transportation by owned cars, train/bus, and rented cars increased. Following this, we have the planned budget.
ETC survey: Envisaged budget for travel (May 2021 vs. May 2022, %)
In this category as well, we can see that there has been an increase in the percentage of people who wanted to spend 500 to 1,000 euros per trip, while higher numbers (1,000 – 1,500 and 1,500 – 2,000 euros, decreased), and above that, the numbers remained roughly the same.
ETC survey: Top 5 European travelers’ concerns (May 2022, %)
Finally, taking a look at the main concerns for travelers, taken together, concerns related to COVID-19 (37.5%) still top the list. These include sudden quarantine during a trip (10.7%), rising COVID-19 cases in the country of choice (9.5%), becoming ill with COVID-19 during the trip (9.3%), and changes in travel restrictions during a trip (8%). However, taken individually, inflation tops the list, at 17.9%, followed by the ongoing war in Ukraine, at 14.4%, and the economic situation and personal finances, at 12.6%.
What can we summarize from all of this data? First, the vast majority of people are still willing to travel, although at a somewhat lower rate than in March 2022. The Mediterranean destinations remain at the top of the list, with Croatia in the top 5 most preferred countries of travel. The preferred mode of travel is by land, i.e., car (be it owned or rented), or train/bus, while air travel is still strong, although somewhat lower than before. The changes in these trends can be directly attributed to the main individual concerns, i.e., the strong inflation rates across Europe, which is reducing disposable incomes, while at the same time, making overall trips more expensive due to higher travel and accommodation expenses.
How does this relate to Croatia? Consider the following: the Central European countries are the largest emissive markets for Croatia, travel by land still remains the preferred mode of travel, travelers are unlikely to cancel their trips, and of course, Croatia is in the top 5 most desired destinations for Europeans. These trends are pointing toward the fact that the summer season, at least from this survey’s perspective, should be good for Croatia.
Has that proven to be the case, though? We can look at the latest data from the Croatian National Tourist Board (HTZ) for some answers. According to the latest data, tourist arrivals in August amounted to 4.59m, while in July, they amounted to 4.62m. Of this, foreign tourists accounted for the majority, at 91%, and 92%, respectively. Compared to August 2021, the total tourist arrivals increased by 7%, while out of the total, foreign tourist arrivals increased by 9%. Meanwhile, compared to July 2021, total arrivals increased by 22%, while out of this, foreign arrivals increased by 26%.
Moving on to the tourist nights, they amounted to 32m in August 2022, and 29.6m in July 2022. Of this, foreign tourist arrivals accounted for 88% and 89%, respectively. On a YoY basis, compared to August 2021, tourist nights increased by 4%, while compared to July 2021, tourist nights increased by 18% YoY. Of this, foreign tourist nights in August 2022 increased by 6% YoY, while in July 2022, they increased by 21% YoY. At the same time, domestic tourist arrivals and tourist nights decreased on a YoY basis, both in July and August 2022. This data can show us that foreign tourist arrivals and overnights have recovered despite the current inflationary and macroeconomic situation, but that the domestic tourists are lagging, which due to higher prices is to be expected.
We can also look at the average stay per person, and this amounted to 6.98 tourist nights per person in August, and 6.4 tourist nights per person in July, a decrease of 2.7% and 3.4% YoY, respectively.
Total tourist arrivals and overnight stays in Croatia (January 2019 – August 2022)
To give a better overview, however, we should compare these numbers to 2019, the last year when tourism could operate as normal. Looking at it this way, total arrivals in August 2022 decreased by 8% compared to August 2019, while in July 2022, they increased by 1%. Of this, Foreign tourist arrivals decreased by 9% in August 2022, while they remained roughly the same in July. Moving on to tourist nights, total tourist nights decreased by 3% in both August and July, respectively, compared to the same period in 2019. Finally, foreign tourist nights decreased by 2% in both August and July 2022 compared to August and July 2019.
In regard to domestic arrivals, they increased by 3% in August 2022 compared to August 2019, while they increased by 10% in July. Domestic tourist nights, however, decreased by 9% in August, and 10% in July. But, looking at the number of arrivals and nights does not show the entire picture. If it did, then one would expect this summer season to be worse off than 2019, based on the lower number of arrivals and tourist nights. Is this the case, though?
Unfortunately, until all the data regarding the tourism companies for Q3 (which will be available by the end of October), and the overall revenue for tourism, which will be available next year for 2022, is available, we can only look at indirect data. One of these data points is the value of taxable invoices, in the category of accommodation and food services as a way to gauge how the revenues developed. These are currently the closest indicator of how the revenues in tourism are developing. It should be noted that this should be used as an approximation, and not as a direct 1:1 comparison with real revenue.
Value of taxable invoices in the category of accommodation and food services ( First 8 months 2022 vs. corresponding months in 2019,%)
As can be seen in the figure above, the value of taxable invoices related to tourism activities increased by 37% compared to the same period in 2019, amounting to HRK 28.2bn. If we were to compare August and July 2022 compared to the same period in 2019, then the numbers were 49% and 50% higher, respectively. So, if we have a lower amount of tourist arrivals and nights compared to 2019, but higher taxable invoices, significantly higher in fact, then the only driver of this could be the higher prices. As inflation rates across Europe increased, the tourism industry was and still is affected, so higher prices of accommodation and services are to be expected.
Now we can ask ourselves, in this environment, how are the tourist companies doing, and what are our expectations for this year?
We estimate that this summer season, according to all the available data and the trends that can be seen in the industry, will be comparable to 2019 in terms of tourist arrivals and nights, albeit several percent lower. At the same time, with the higher prices already implemented, we expect that revenues for the tourist companies in Q3 2022 will be app. 20-25% higher than in 2019. Meanwhile, total expenses (which include material costs, energy costs, staff costs, etc.) will be somewhat higher, something that could already be seen in the H1 2022 results. How much higher? This one is harder to gauge, as different companies have different cost mixes, different hedging strategies, and long-term contracts. However, according to our estimates, we expect operating expenses to be app. 40-50% higher than they were in 2019. This would mean that the summer season will have lower operating margins than in 2019, even if the revenue is higher.
Overall, 2022 summer season should be a return to form for Croatian tourism, with close levels to 2019, but how exactly it will turn out, only time will tell.